Neha is from New Jersey and is one of our CPA exam bloggers. She writes for us every Friday.
It’s tax refund season and I am sure, each one of us has at least once thought of claiming a tax deduction for the CPA review course expenses. So, let’s see who is eligible to claim a tax deduction of such expenses under the US tax laws. If you fall within the ambit of the Indian tax laws, then look out for my forthcoming posts where I’ll discuss if such expenses can be deducted under the Indian Income-tax Act, 1961.
Well, there is really no straight jacket formula for determining the tax deductibility of such expense and much depends upon the facts and circumstances of each taxpayer. The following discussion would throw some light on the same:
Whether you can claim an adjustment of CPA review course expenses?
Qualified education expenses are deductible [to compute Adjusted Gross Income (AGI)] only if they are paid towards the enrollment or attendance at an eligible educational institution. In common parlance, such review courses may partake the character of private coaching centers, however, they may not be regarded as educational institutions. Thus, in my opinion, it may not be possible to take a deduction (adjustment) of such CPA review course expenses to arrive at AGI.
Whether you can claim an Itemized Deduction of CPA Review Course expenses?
Let’s see whether a taxpayer can take an itemized deduction of such expenses (i.e., if your itemized deductions are greater than the standard deduction, you will claim an itemized deduction on Schedule A of Form 1040). If you itemize your deductions, the general rule is that you may be able to claim a deduction for the expenses you pay for your work-related education. However, you are not eligible to claim an itemized deduction of such expenses if such education prepares you for a new trade or profession.
Now, here is the bummer!! Publication 970: Tax Benefits for Education issued by the Internal Revenue Service clearly states, inter-alia, that CPA Review Course to prepare for the CPA examination isn’t qualifying work-related education. They are part of a program of study that can qualify you for a new profession, and therefore not eligible for deduction.
One may argue that if the taxpayer is already a public accountant, then pursuing CPA would not make him eligible for a new trade or profession, and therefore the expenses may be deductible. Unfortunately, the courts have held otherwise. It has been held in a number of cases that a CPA is authorized to perform several tasks that public accountants are not permitted to perform, and therefore a CPA and a public accountant are two separate trades or businesses. Thus, the CPA review course qualifies the taxpayer for a new trade or business and therefore the expenses are not deductible.
Another argument a taxpayer may adopt is that he doesn’t intend to perform the services of a CPA and would continue to perform the same services as he did before clearing the CPA exam. However, the courts have pointed out that the only issue to be examined is whether the education will lead to qualifying the taxpayer for a new trade or business; the taxpayer’s actual intention to engage in the trade or business is irrelevant.
As much disappointed as I was after analyzing the tax provisions to this effect, I didn’t take any deduction for the expenses I incurred towards the CPA review course. It may be noted that there are several other education expense related provisions in the Code that grant exemption or credits or deductions to a taxpayer, however, I have not discussed them here for the sake of brevity of this post.
Thanks for reading!
Disclaimer: The above mentioned is a personal opinion of the author and should not be construed as a Legal Opinion. It is advisable to seek the opinion of a CPA or a tax lawyer before making any decision that may impact your tax liability in any way.
 Glenn v. Commissioner 62 T.C. 270
Browne v. Commissioner 73 T.C. 723
Cooper v. Commissioner T.C. Memo 1978-117
Note from Stephanie
Yes, I was definitely one of those who thought about tax deduction 😉 Was too lazy digging into the details and decided not to take any. Glad I wasn’t missing anything!
This is a very practical and helpful article and I am glad you share your expertise, Neha. Looking forward to reading the Indian version of this. And thanks for adding the legalese for the sake of the law.
Neha lives with her family in New Jersey. She passed the CPA exam in 2014 and is currently pursuing LLM in Taxation from New York Law School.